Wednesday, March 18, 2009

Here is what all the fuss is about: AIG

I almost got out of needing to write about the latest "we're all so ticked that the big fat cats at the ailing financial company got paid big time while us taxpayers got the shaft" story.

Then, as I was driving to pick up lunch, I was listening to Nancy Skinner. (BTW, I REALLY miss Randi Rhodes on the radio. Though, what I heard from Nancy Skinner today really helped me appreciate how much she has improved as a host in the past couple of months)

She played clips of testimony offered to (a subcommittee) earlier today by AIG CEO Ed Liddy. The on-line audio/video isn't captioned, but this Op-Ed written by Mr. Liddy in yesterday's Washington Post is a pretty good encapsulation of what I heard on the radio.

Here's the most important part of what Mr. Liddy wrote on 3/17/09 (per the Washington Post) and what he said earlier today:

"Although (AIG has) wound down more than $1 trillion in the portfolio of the AIG Financial Products unit . . ., there remains substantial risk in that portfolio.

[snip]

To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place (Mr. Liddy joined AIG in September 2008, well before the contracts were signed). As has been reported, payments were made to employees in the Financial Products unit. Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were in place more than a year ago. It was distasteful to have to make these payments. But (AIG) concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high."

The alternative would have been to tell these employees something like:

"Look, we lost a heckuva lot of money last year and there's no way we can afford to pay out the retention bonuses now".

At that point, the employees could have chosen to enforce the terms of the contract by retaining attorneys and suing AIG

or

they could have worked out an alternate agreement (i.e. pay the same bonus 6 months from now or pay half now and half six months from now or something else).

Somehow, the best thing to do was to write the checks then and there? There was no one at AIG that could have offered some kind of incentive and/or a higher bonus for having to wait another 6 months or another year for that bonus??

Better questions:

What is going on at AIG that is worse than what is happening now which would lead AIG to think it better to pay the bonus now?

What might the employees know and cannot say under a standard employee non-disclosure agreement that the retention bonus would help to keep silent?

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